A PENSIONER’S PLIGHT

the annuity is adjusted positively or negatively in accordance with the property bonus declared by Liberty. The annuity is adjusted by the difference between the declared bonus and eight percent. The annuity could therefore either increase or decrease. At no time, however, will the annuity be less than the guaranteed [initial rate].”

Liberty also subtracts its management fee (1.62 percent) from the return.

In this way, Mr H’s annual income from the annuity increased from R9 344 in 1992 to R30 468 in 2015, which represents an average increase of 5.3 percent a year, Lapedus says.

Mr H complains that up until 2010, increases averaged above six percent, but since then, he says, they have been below two percent a year.

Lapedus provided a table showing the returns, which reflect Mr H’s concerns (see table) .

“The Liberty Property Portfolio has holdings in highquality direct (unlisted) property investments,” Lapedus says.

“As at December 31, 2015, the average annual return over the last 10 years was 13.12 percent. The portfolio has delivered on its mandate to provide investors with steady, reliable returns with low volatility over the longer term. It continues to deliver on this objective and its performance target of inflation (as measured by the Consumer Price Index) plus five percentage points a year over a rolling five-year period, before costs.”

It is likely that, in comparing returns, Mr H referred to the FTSE/JSE SA Listed Property Index (Sapy). The Sapy delivered average annual returns of 17.02 percent over five years to the end of 2015. However, the Sapy does not track the returns on physical properties. It tracks the share prices of 22 property companies listed on the JSE, which may be volatile and may be overvalued in terms of the companies’ earnings, and some of the listed companies have extensive foreign property holdings.

A fairer comparison may be with the IPD SA Property Index, which tracks returns on commercial properties across South Africa. This index returned 13.5 percent a year, on average, in the five years ending December 2015, compared with the Liberty portfolio’s 10.62 percent.

“The IPD SA Property Index doesn’t correspond exactly to the Liberty Property Portfolio. I suspect that it is more volatile than the Liberty portfolio,” Lapedus says.

Mr H’s product is no longer sold by Liberty, Lapedus says. It has been overtaken by inflation-linked annuity products. He says there are about 2 000 holders of this type of annuity still on Liberty’s books. They are welcome to switch into another type of Liberty annuity, but are likely to get a lower rate.